San Francisco's raise-the-pay experiment

San Francisco Chronicle, January 28, 2014

by Ken Jacobs and Michael Reich

There's an upsurge of interest in citywide minimum wages. Mayor Ed Lee has called for an increase in San Francisco's minimum wage - to as much as $15 an hour, up from $10.55 an hour - while across the bay Berkeley and Richmond are considering their own wage floors. San Diego, Seattle and Chicago are among other cities that could soon pass minimum-wage laws. And San Jose and Albuquerque implemented their own minimums ($10.15 and $8.60 an hour, respectively) last year.

Even though President Obama made raising the federal minimum wage ($7.25 an hour) a centerpiece of his State of the Union address and conservatives such as Bill O'Reilly have come out in favor of an increased minimum wage, cities are not waiting for Washington to act. Faced with dysfunction in Congress and the higher cost of living in urban areas, policymakers and the public are asking whether cities can make a difference in confronting rising income inequality and low-wage work.

An unprecedented experiment in San Francisco shows that local policy can make a difference in the lives of low-wage workers- without hurting employment or economic growth.

In 2004, San Francisco was the first U.S. city to implement a minimum-wage law, then setting the wage at $8.50 an hour. Over the past 15 years, San Francisco also introduced universal paid sick leave, created an employer health spending requirement, and set higher living wage requirements for city contractors and workers at San Francisco International Airport.

These new standards have brought substantial improvements in compensation and access to health care to tens of thousands of low-wage workers and their families. The minimum wage law alone put $1.2 billion in the pockets of San Francisco workers such as Li Yi Wu, whose salary at a local restaurant increased by hundreds of dollars a week, allowing her to better care for her young son.

Since 2004, real wages for workers at the bottom stagnated and then fell in the rest of the Bay Area and in the United States as a whole, but they rose in San Francisco and maintained their higher value because the minimum wage is indexed.

Most important, San Francisco achieved this result without hurting employment or job growth. From 2004 to 2011, employment among food service workers, who are more likely to be affected by minimum wages, grew faster in San Francisco (17.7 percent) than in the other Bay Area counties (13.2 percent).

Despite initial opposition, firms quickly adjusted. Turnover fell, reducing costs for recruitment and training and increasing productivity. Employers at the airport reported improved work performance and customer service and reduced grievances and absenteeism. Prices at fast-food restaurants rose an estimated 2.8 percent as a result of the minimum-wage law. Surveys of employers found broad support for the paid sick leave and health care requirements.

San Francisco is in the midst of another tech boom. Housing costs are rising, and middle-income families are being pushed out of the city. Labor standards alone cannot solve these problems, but they are an essential part of addressing income inequality and expanding opportunity for those at the bottom. San Francisco can and should build on this strong policy base and raise the minimum wage. Other cities would do well to follow its lead.

Ken Jacobs is the chair of the UC Berkeley Labor Center. Michael Reich is a professor of economics and director of the Institute for Research and Employment at UC Berkeley. They are editors of "When Mandates Work: Raising Labor Standards at the Local Level," University of California Press, 2014).